[MARKET ANALYSIS] Fixed income benchmarks bid amid a lack of geopolitical updates and quiet calendar

Global fixed benchmarks continue to take impetus from the price action seen across the energy complex, with yields softer across the curve as WTI and Brent prints losses of c. 2.5%. Geopolitical updates have been light thus far, with commentary out of Iran continuing to reiterate its stance on the Strait of Hormuz, “management of the Strait of Hormuz is a precondition that cannot be negotiated,” while the Iranian Supreme Leader advisor stated that the real guarantor of any agreement with the US is the Strait of Hormuz.
Another catalyst for short-end yields further dropping is the continued downward surprise to global inflation data. Australia is the most recent G10 economy to report lower-than-expected headline CPI (4.2% vs exp. 4.4%). Only the US has logged a slightly hotter monthly print.
USTs gain by a handful of ticks, trading at the upper end of its 109-27 to 110-00+ range.
Bunds are higher by some 22 ticks, and further extending beyond the 126 handle (126.10-126.27 range). In terms of commentary, ECB’s Stournaras said a June hike is likely, which is in line with recent rhetoric by policymakers. The Bank also released its financial stability review, in which it stated that financial markets are in danger of a sudden and significant correction, with asset prices looking stretched by historical standards. However, no reaction was seen in the Bund complex.
Gilts outperform with gains of 41 ticks as it nears the 89 handle. In yield terms, the 10yr has slipped back below 4.85%, it remains a fair way from the April 17th low of 4.73%. In comparison to its German counterpart, it has already breached the low. Ahead, the DMO is to sell 4bln of its 4.125% 2033 Gilt. Demand could be tepid for this tap, with UniCredit highlighting 3 reasons to remain cautious on UK debt: 1) political uncertainty, 2) inflationary pressure well above BoEʼs target, and 3) weakening macro fundamentals.